Executive Board of BCT Keeps Bank's Key Rate Unchanged at 8%
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Loading... - Jendayi Gad
- 02 Aug 2024
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The Executive Board of the Central Bank of Tunisia (BCT) convened on July 31, 2024, and decided to maintain the Bank's key rate at 8%. This decision underscores the priority of consolidating the disinflationary process and preserving macroeconomic and financial stability.
During the meeting, the Board reviewed the latest economic and financial developments at both national and international levels. They discussed the progression of banking activity in 2023 and the first half of 2024, focusing on economic financing, savings mobilization, and the financial solidity of the banking sector amid upcoming challenges.
In May 2024, Tunisia experienced a brief pause in inflation at 7.2% year-on-year, but it slightly rose to 7.3% in June 2024 from 9.3% the previous year, primarily due to an acceleration in fresh food prices. Meanwhile, core inflation, excluding fresh food and administered prices, continued its downward trajectory, dropping from 7.3% in May to 7.2% in June 2024.
The Board highlighted a continued contraction of the current account deficit in the first half of 2024, which stood at TND -2,388 million (or -1.4% of GDP), compared to TND -3,164 million (or -2% of GDP) a year earlier. This improvement was partly due to a 7.7% reduction in the trade deficit (FOB-CAF) to TND -8,017 million, despite a worsening energy balance deficit of TND -5,794 million in the same period.
Tourism receipts and remittances from Tunisian workers increased by 6.6% and 7.2%, respectively. As a result, net foreign exchange assets rose to TND 24,500 million (111 days of imports) as of July 30, 2024, up from TND 23,250 million (101 days of imports) the previous year.
The Board expressed concern over the slowdown in lending to the economy during 2023 and the first half of 2024, particularly affecting loans to small and medium-sized enterprises (SMEs) and individuals. This trend is influenced by the economic context and persistent inflationary pressures.
The Board underscored the importance of pooling efforts from all stakeholders to support companies, ensure their viability, and preserve jobs.
Despite challenges, the banking sector demonstrated positive growth in raising deposits, maintaining an average growth rate of 8%. This was attributed to the BCT's decision to raise the rate of interest on savings three times in 2022 and 2023. The sector also improved its liquidity situation due to the slowdown in credit growth.
The banking sector has shown progress in strengthening its financial solidity and risk coverage, as evidenced by a steady rise in the overall solvency ratio, which has exceeded 14% (against a regulatory ratio of 10%). This improvement is a result of proactive measures taken by the BCT since the COVID-19 crisis to regulate dividend distribution policies, consolidating financial stability and boosting banks' ability to manage classified loans and climate change challenges.
The Board emphasized the need for the BCT to complete the adaptation of the prudential framework to align gradually with international standards. It also stressed the importance of integrating the environmental dimension and green finance in governance and bank financing practices to enhance overall financial resilience. The Central Bank of Tunisia's decision to maintain the key rate at 8% reflects a cautious approach to balancing disinflationary efforts with the need for macroeconomic stability.
